The Cost of Intelligence

Viscerally, in the wake of the Cold War, many Americans believe the costs of intelligence should go down. Indeed, since 1989, the resources allocated to intelligence have gone down-by about 21 percent in real terms-but, nonetheless, they remain substantial. Budget projections show spending for intelligence holding relatively constant in real terms through the rest of the decade. Reflecting a sense of unease, Congress asked this Commission to determine "- whether the existing levels of resources allocated for intelligence collection and intelligence analysis are seriously at variance with United States needs. -"

To answer this question, the Commission undertook an extensive
review of the intelligence budget and analyzed the changes to
that budget since 1980. In doing so, the Commission attempted
to ascertain what basis, if any, had been used over time to arrive
at the resource level for intelligence. Was there a discernable
standard or criteria that might help those responsible for resource
allocations in the future to determine how much intelligence is
enough?

Recognizing that pressure to reduce spending is apt to continue,
the Commission attempted to assess whether and how the costs of
the existing intelligence capability could be reduced without
damaging the nation's security.

The Recent History of Intelligence Funding, in Brief

In recent decades, intelligence funding has been treated preferentially
when compared to other parts of the Defense budget. As Figure
1 illustrates, non-intelligence defense funding in real (constant
dollar) terms grew by 40 percent from 1980 to 1986, leveled off,
and then declined to its current level, four percent below its
1980 level. In contrast, total intelligence funding grew by 125
percent in real (constant dollar) terms from 1980 to 1989 but
declined thereafter to its current level of 80 percent above 1980.
Reductions taken in the intelligence budget since 1989 have been
at a rate to allow the intelligence agencies to continue most
of their basic activities. Each agency has taken its share of
the reduction from 1989, but no major structural change was required.

Personnel strength at NSA, CIA, and DIA has also remained significantly
above the 1980 level despite across- the-board reductions over
the last four years. NSA is 22 percent above its 1980 level; CIA,
8 percent; and DIA, 80 percent, primarily because DIA assumed
major new functions which involved the transfer of additional
personnel. In 1991, Congress in concert with the Bush Administration
imposed a 17.5 percent across-the-board reduction in intelligence
personnel to be accomplished between 1991 and 1997. This is less
than 3 percent per year and has already largely been accomplished
through attrition. This agreement had the Intelligence Community
already on track when President Clinton directed that overall
government personnel be reduced by 12 percent from 1993 to 1997,
or about 3 percent per year. The Community has, in fact, extended
these reductions through 2001, resulting in an anticipated total
reduction from 1991 to 2001 of about 24 percent. This pace of
reduction is consistent with the level of reductions that the
President has directed for non-intelligence agencies.

Although intelligence funding remains classified, Figure 2 depicts
the relative funding levels of the major intelligence agencies
and their personnel levels for FY 1996. NSA, CIA, and DIA (and
the Service intelligence units) have the largest number of personnel;
the NRO, on the other hand, has the highest level of funding of
any program in the Community, but virtually no federal workforce.
Its work is accomplished primarily by contractors in the private
sector.

The Community Management Staff (CMS) is the small staff of the
DCI used to assist in the execution of his Community functions.

What Conclusions Can Be Drawn from Recent Experience?

In general, from 1980 until the present, intelligence grew at
a faster rate than defense when defense spending was going up
and decreased at a slower rate when defense spending was going
down. As a result, intelligence funding is now at a level 80 percent
above where it was in 1980, while defense overall (other than
intelligence) is now 4 percent below its 1980 level.

Because the Secretary of Defense in consultation with the Director
of Central Intelligence has largely determined1 the size of the
annual budget for intelligence vis-à-vis the remainder
of the defense budget, one conclusion that might be drawn is that
successive Secretaries since 1980 have believed that intelligence
should be funded at a somewhat higher rate than defense (regardless
of the rate of increase or decrease for defense as a whole). Based
upon the Commission's interviews, it appears that, in practice,
most Secretaries have begun with the amount appropriated for intelligence
the previous year, taken into account whether the overall defense
number is increasing or decreasing, examined the additional initiatives
needed for intelligence, and arrived at a somewhat preferential
number for intelligence spending. Compounded over a period of
years, this practice has led to the relatively large disparity
between where intelligence is now funded, relative to its 1980
level, as compared with where defense spending other than intelligence
is now funded relative to its 1980 level.

The Commission does not conclude the practice followed by successive
Secretaries of Defense is necessarily right or wrong, but only
that it has been the case. Nor does the Commission conclude that
the wide disparity between intelligence spending and defense spending,
relative to their 1980 levels, necessarily means that intelligence
spending should be cut. But what, then, should be used to gauge
the level of spending for intelligence?

The Commission struggled to find a substantive standard or criteria
that might serve as a basis for answering this question. Some
suggested that the spending level for intelligence should be what
is needed to support the military operational requirements of
a particular Administration, e.g. the "two major regional
conflicts" strategy of the current Administration, and all
other intelligence needs should be met by the same intelligence
capabilities. The capabilities needed to support military operations,
however, will not satisfy all intelligence needs. For example,
the President and other users (including defense officials) rely
on information produced by intelligence capabilities that are
not principally used to support military operations, e.g., HUMINT,
some imagery, and some signals intelligence activities. Moreover,
the operational needs of the military provide no real limits to
intelligence spending. As military commanders seek to win battles
while minimizing casualties by knowing where the enemy is at all
times-what the Pentagon has been referring to as "dominant
battlespace awareness"-the need for intelligence grows exponentially.
The costs of collecting signals and imagery intelligence from
satellites, processing it at ground stations, and transmitting
it to foxholes, tanks and aircraft in the "battlespace,"
all in a matter of seconds, are potentially unlimited and, regardless
of how much capability is available, it may never provide total
coverage.2

The Commission found it is equally difficult to assess the overall
resource level for intelligence based upon the perception of the
"threat" at any given point in time. If one target is
no longer considered a "threat," intelligence collectors
usually can be moved to others that are. Indeed, since intelligence
collection capabilities, both human and technical, take years
to deploy once resources for them have been provided, they are
designed to be flexible in order to adapt to new needs.

Ultimately, the Commission concluded that developing a precise
criterion for measuring the right level of intelligence resources
would inevitably be too simplistic and perhaps unwise. The reality,
as for many functions of government, is that intelligence capabilities
are determined by whatever the nation chooses to spend on them,
not by some rigorous calculation which attempts to precisely balance
threats against capabilities. Like the conduct of diplomacy, controlling
commercial air traffic, monitoring weather, or defending our borders,
there is always more that could be done. Unlike the precision
that the government can attach to the cost of delivering a letter,
or printing and delivering a Social Security check, there is no
precise means to determine how much the nation should spend on
intelligence. Just as with other aspects of our national security,
determining the appropriate level for intelligence funding requires
an assessment of various criteria such as foreign threats and
the advantages a particular capability can provide against such
threats. These must then be weighed against what the nation can
afford, given other government spending requirements and priorities.

In any event, how much the nation can afford to spend on intelligence
has been and will continue to be constrained. While the need for
such capabilities is compelling, so too is the need to reduce
Government spending. Over the next decade, there is likely to
be strong and persistent pressure to reduce the costs of Government
across the board. Given the fact that the President and the Congress
have now agreed in principle to balance the federal budget by
the year 2002, deficit reduction casts a particularly long shadow
over future intelligence investments. Though the calculations
thus far agreed upon for balancing the budget assume that defense
spending is capped and intelligence funding remains flat within
this cap, changes in the economy or other spending priorities
could re-open the debate on the level of spending for defense
and hence impact intelligence. Therefore, reducing intelligence
funding due to external pressures may be unavoidable in the long
run. Furthermore, internal Defense Department pressures to reduce
intelligence are also growing as the military services vie for
funds to modernize their forces, maintain current levels of readiness,
and pay for an increasing number of peacekeeping missions. Even
within the existing cap for intelligence in the projected budget,
there will be pressures to hold costs down in some areas and increase
them in others.

What Needs to be Done

In view of these pressures, it behooves those with responsibility
for intelligence resources to begin planning how such resources
might be further reduced and/or reallocated to meet future intelligence
requirements. Unfortunately, while the Commission found evidence
of such planning in a few agencies, most intelligence agencies
seemed to lack a resource strategy apart from what is reflected
in the President's current six-year budget projection. Indeed,
until the Intelligence Community reforms its budget process, it
is poorly positioned to implement such strategies. The Commission's
recommended actions to improve the budget process, set forth in
Chapter 7, are thus a necessary first step towards more rational
resource planning. The Commission also believes that certain of
its other recommendations, if implemented, would produce costs
savings:

The one-time personnel authority outlined in Chapter 9
to "rightsize" to meet the needs of the Intelligence
Community could save an estimated $2-3 billion in personnel costs
over a ten-year period.

The infrastructure costs associated with maintaining the
existing level of personnel (e.g. buildings, communications, recruitment,
security, training) could also be reduced, as noted in Chapter
9.

Increased international cooperation in space reconnaissance,
as recommended in Chapter 11, could, in time, also achieve savings.

In addition, there are a number of developments external to the
Intelligence Community which offer promise of cost reductions:

Aggressive implementation of the acquisition reforms recommended
by the Defense Science Board would reduce the burden on industry
and government of excessive red-tape and unnecessary oversight,
and should reduce the costs of contract administration for most
DoD intelligence components;

Capabilities under development in the private sector, such
as commercial imaging systems, might prove sufficiently reliable
that intelligence capabilities could be reduced; and

Potential savings could also stem from greater use of commercial
technology for intelligence purposes, such as using commercial
communication systems to disseminate intelligence to consumers
around the world.

The Commission also explored the feasibility of reducing costs
by allowing intelligence agencies to charge their consumer departments
and agencies for the support they receive. Many witnesses pointed
out that intelligence is a "free good" to most departments
and agencies. Whether the support provided by intelligence is
a map for a State Department analyst, an intelligence report on
the economic conditions in a particular country for a Treasury
analyst, or imagery necessary for precisely targeting Air Force
cruise missiles, the cost of producing these intelligence products
is free to the user. Because it is free, the appetite of consumers
is essentially insatiable and undisciplined. Consumers who appeared
before the Commission conceded that if they had to pay for intelligence
support out of their agency budgets, they would, in fact, be more
judicious in the number and type of requests they levied.

While charging for intelligence support may, indeed, bring greater
discipline to the system, the Commission found many practical
difficulties in implementing such a system. One is assigning cost
to intelligence support. How does one assign a monetary value
to an intelligence analysis, or a map, or a photograph? Another
is providing intelligence support to departments and agencies
who need it but have not asked for it. What do intelligence agencies
do when they have crucial information for a particular department
or agency, but the customer agency has used up its annual allocation
for intelligence support? How would such a system be administered?
Would each intelligence producer keep its own accounts? Would
departments and agencies who were delinquent in their payments
have their intelligence spigots turned off?

The Commission concluded that the benefits of bringing greater
discipline to the current system by permitting intelligence agencies
to charge for their services were far outweighed by the difficulties
apparent in implementing such a proposal.

The Commission did, however, make one additional effort to assess
intelligence costs by undertaking a review of the projected budget
for intelligence from FY 1996-2001 in order to ascertain whether
there appeared to be intelligence programs that were duplicative
or providing marginal value. The conclusions of this review are
set forth in the next section.

The Commission's Budget Review

The purpose of the Commission's review was to determine whether
there were existing intelligence capabilities, developed during
the Cold War, which appeared to be duplicative of each other or
of other government capabilities, or which otherwise provided
capability excess to the country's needs in the post-Cold War
era. The intent of this review was not to arrive at recommendations
for cuts to specific programs, but rather to judge whether such
problems were apparent, and, if so, to what extent.

To perform this review, the Commission's staff organized the President's
FY 1996 to FY 2001 budget for national and tactical intelligence
programs into seven "business areas:" 1) signals collection
and processing, 2) imagery collection and processing, 3) human
source collection and processing, 4) measurement and signature
collection and processing, 5) production and analysis of intelligence
products, 6) multidisciplinary intelligence (those programs that
contribute to multiple intelligence disciplines), and 7) intelligence
infrastructure (buildings, support staffs, telecommunications,
etc.). All intelligence programs and activities funded by the
National Foreign Intelligence Program, the Joint Military Intelligence
Program, and the Tactical Intelligence and Related Activities
aggregation were included.

Within each of the business areas identified above, further divisions
were made to identify the end use, target, or ultimate purpose
of the expenditure. For example, the business area of "imagery
collection and processing" was divided into three further
categories: 1) imagery of the battlefield; 2) imagery for indications
and warning intelligence, science and technological developments,
and other needs; and 3) imagery management and dissemination.
The purpose of this approach was to align expenditures for intelligence
programs with their ultimate purpose or target in order to make
informed decisions concerning possible duplication or excess capability.

Ultimately, the Commission staff assessed the contributions made
by each intelligence program or activity with respect to each
of the selected end uses or targets, and judged whether the programs
were appropriate given the end of the Cold War, whether they duplicated
other programs, and whether they provided excessive capability.
These were necessarily subjective judgments based upon the staff's
appreciation of the Government's need and what the respective
programs and activities contributed in particular areas.

The Commission nonetheless believes the staff's review demonstrated
that reductions to the existing and planned intelligence resources
may be possible without damaging the nation's security. Indeed,
finding such reductions is critical if funds are to be found for
the investments in intelligence capabilities that the nation will
need in the future, capabilities that are not now funded in the
proposed program and budget. Precisely where such reductions should
be made and at what level are judgments which the Commission is
not in a position to make. Nonetheless, it is clear a more rigorous
analysis of the resources budgeted for intelligence is required.
In the Commission's view, this analysis should be performed jointly
by the DCI, the Secretary of Defense, and the Director, OMB. It
should span all three sources of intelligence funding (NFIP, JMIP,
and TIARA) and assess the total U.S. intelligence capability against
particular targets or types of targets.

In sum, the Commission believes cost savings can be achieved
if the Intelligence Community adopts the management practices
and implements the cooperative arrangements summarized earlier
in this chapter. Those actions, together with pruning unnecessary
requirements and unproductive systems and activities, could free
significant resources. At the same time, the Commission recognizes
that its proposed reforms to the budget review process could result
in the identification of shortfalls between programmed resources
and needed capabilities, or identify areas where new developments
and investments are needed but are not now programmed. This might
require the expenditure of most, perhaps all, of the funds freed
up by cost saving measures. The Commission itself is not in a
position to make this assessment.1

Footnotes

2There is, in fact, a process within DoD for trading off intelligence expenditures needed for the support of military operations against non-intelligence expenditures needed to support military operations within the overall limits of the DoD budget. Support to military operations does provide, in any case, the principal justification for the overall level of expenditure for intelligence within DoD.